Summary

As private finance becomes an increasingly important part of the landscape for climate change mitigation and adaptation, integrating just transition considerations into these flows is becoming more urgent. However, practice within private finance remains largely clustered around narrow interpretations of the concept and providing baseline, compliance-based social protections. The levers for meaningful action vary by investor and asset class, with unlisted markets and development finance institutions offering greater agency. A significant barrier is the absence of a robust business case, as current framings remain conceptual and lack practical tools for standard decision-making processes. Recommendations for policymakers and investors include strengthening the evidence base, embedding just transition within existing financial regulation, and supporting governments to operationalise commitments encoded in their Nationally Determined Contributions (NDCs).

Introduction

The integration of just transition considerations into private financial flows remains limited, narrow in scope, and far from mainstream. This occurs despite a growing gap in climate finance, particularly in developing countries where public finance faces fiscal constraints. This policy brief synthesises findings from the Just Transition Finance Lab’s research series, which examines ‘hot spots’ of emerging best practice across multilateral development banks (MDBs), sovereign issuers of green, social, and sustainability (GSS+) bonds, and investment managers in private and listed markets. It concludes that a quantifiable, robust business case is the key missing link for mainstreaming just transition finance.

The state of play in just transition finance

There is currently no consensus on the definition or scope of the just transition for private investments. Practice typically clusters around limited activities, such as providing safeguards for labour rights and supply chains. While some investment practices incorporate just transition explicitly, they are more likely to do so through implicit references to workforce transitions, community engagement, and supply chain human rights assessments. Most private finance activity seeks primarily to comply with baseline legal measures. However, a minority of actors, often development finance institutions and sovereign bodies, show higher ambition by fostering a social licence to operate and referencing frameworks like the UN Sustainable Development Goals and national climate plans.

Investor activity varies by asset and investor class, reflecting different levels of agency and investor mandates

Investor activity on just transition varies significantly by asset class and risk profile. In private market and infrastructure investments, project-level risks often lead to the consideration of land rights, community displacement, and Indigenous rights. Similarly, GSS+ bonds issued by MDBs often feature strong safeguards and high standards for social due diligence. Case study evidence highlights that listed debt investors can influence issuers during bond roadshows to clarify workforce retention and redeployment strategies. In unlisted markets, investment managers have successfully required investee companies to develop Social and Environmental Action Plans as a condition of financing. Additionally, unlisted equity managers have facilitated training programmes for vulnerable demographics to improve access to employment in green economy jobs.

Developing the business case for just transition-aligned finance remains a key missing link

The case for just transition as a financially material consideration is still developing, with limited quantitative evidence available. The difficulty lies in determining the benefits created and the risks mitigated, as costs are often defined by simple spending. Proposed benefits include the amplification of impact and risk mitigation. For vanilla investors, risk mitigation is central, yet systemic, operational, and policy risks—such as community opposition leading to project delays—are difficult to quantify using conventional risk management methodologies.

Investor engagement on just transition faces significant challenges, many of which are structural

Investors generally rely on dialogue rather than compulsion, making engagement most effective when the investee target is already aware of just transition issues. Outside of specific ‘pinch points’ like investment negotiations, traction remains limited. These structural limitations are compounded by geopolitical headwinds, as some jurisdictions retreat from climate ambitions and the broader backlash against environmental, social, and governance (ESG) investing accelerates. This has led some mainstream investors to adopt more cautious positions, placing the burden of progress on a shrinking group of committed actors.

Looking ahead: priorities to mainstream just transition finance

There is a need for a policy-led just transition with clearly defined responsibilities across public and private actors. Investor action on climate change must shift towards a more realistic understanding of investor agency and the boundaries of fiduciary duty.

Build effective business cases

Private investors require stronger business cases that quantify the costs and benefits of achieving positive impacts and mitigating social risks. Robust methodologies are needed for costing just transition measures, and MDBs should provide public anonymised data on related costs and portfolio losses to allow for clear quantification and data analytics.

Embed just transition in investment frameworks

Just transition requirements should be integrated into existing financial regulation and reporting frameworks, such as the Taskforce on Climate-Related Financial Disclosures (TCFD), rather than developing new architecture. Integrating social issues into climate-related disclosures helps corporations and investors manage the intersection of environmental and social risks.

Create a supportive policy landscape

Stronger public leadership is needed to align the incentives of private finance with just transition objectives. While more countries are including just transition in their NDCs, only 20% satisfy criteria for the institutionalisation of just transition. Operationalising these commitments provides clear guidance for companies and supports the business case for engagement. International climate architecture, such as the Just Transition Mechanism established at COP30, can play a role by providing technical assistance and cultivating a knowledge bank of applied case studies for international best practice.